NEW TECHNOLOGIES ARE HELPING COMPANIES FACILITATE MORE WORK WITH LESS OVERHEAD

OFS companies innovate to survive

AS 2016 BEGINS, oil and gas companies continue to grapple
with the tumultuous environment that has plagued them throughout this past year, and there is little relief in sight. Oil prices remain
depreciated to record levels, clocking in at as low as $37 per barrel,
marking a 60% decline from the high in summer 2014.

As oil stores continue to increase and prices continue to plummet, the aftershocks are being felt through every sector of the
energy industry. For oilfield services companies providing critical
equipment, infrastructure, and services needed to extract and
transport oil, the impact is especially deep. For example, Paal
Kibsgaard, CEO of Schlumberger, told analysts in October that he
did not expect drilling activity to recover before 2017. Amid fewer
available projects and increased competition, many services
companies are undertaking myriad strategies in an attempt to
hunker down and ride out the storm.

HOW ARE OFS COMPANIES
NAVIGATING THE DOWN MARKET?

To help weather the current market and to protect themselvesfrom the stagnant oil outlook predicted for 2016, oilfield servicescompanies are rapidly trimming down. Many oil companies arecutting their budgets by 10% to 15%, and these cuts will trickle todown to service company cuts as well. By decreasing spendingand considerably limiting cash flow, companies are attemptingto keep their assets close and reduce overhead costs. Bloombergestimates that there have already been more than $6.5 billion inwrite-downs related to the price crash, and this number is likelyto grow throughout the coming year. The Wall Street Journal hascharacterized company executives as believing that “no cut is toosmall” in the current environment, referencing some servicescompanies utilizing white rather than colored paint for theirunderwater equipment in an attempt to lessen expenses.In addition to tightening their belts, many oilfield servicescompanies are levering any tactics available to reduce their lia-bilities and exposure to risk. For example, Halliburton is investingin new technologies aimed at reducing the capital, labor andmaintenance needed to sustain rig operations in order to facilitatemore work with less overhead. Some companies are also priori-tizing customer retention by offering current clients deep discountsto encourage them to uphold and renew lucrative contracts. Whilelarge firms may not get to this point, many middle market servicescompanies have little choice but to concede to discount demandsin order to stay afloat. All of these measures are helping companiescushion their balance sheets during lean times.As a last resort, many companies are shutting down lines acrossthe country. A recent Forbes article reports that more than 1,100rig operations have been halted since the price downturn. Ac-cording to a recent iteration of Baker Hughes’ weekly rig count,as of November 25, the count was down to 744, a total reductionof 1,173 since November 2014. As a consequence of the continuedcollapse of the US oil rig count, layoffs are becoming increasinglycommonplace. In October, Schlumberger announced anotherround of massive layoffs, bringing its total reduction in workersover the past year to more than 15% of its total staff. One of itsmajor competitors, Halliburton, has downsized close to 18,000employees.